Budget 2022: Anti-avoidance provisions to deal with Transactions in Securities & Mutual Funds applicable to Dividend Stripping & Bonus Stripping

Budget 2022 - Budget Scan - Budget session - Anti-avoidance provisions - Dividend Stripping - Bonus Stripping - taxscan

The Finance Bill, 2022 tabled on Tuesday amended section 94 of the Income Tax Act to include dividend stripping and bonus stripping with effect from 1st April 2023. The provision contains anti avoidance provisions to deal with transactions in securities and units of mutual fund.

The current provisions of sub-section (8) of section 94 of the Act do not apply to bonus stripping undertaken in case of securities. It is also not applicable to units of Infrastructure Investment Trust (InvIT) or Real Estate Investment Trust (REIT) or Alternative Investment Funds (AIFs) as the definition of the term “unit” has not been modified subsequent to introduction of provisions relating to RETIs, InvITs etc. Further, the current provisions of sub-section (7) of section 94 of the Act, i.e. provisions pertaining to dividend stripping, are not applicable to the units of new pooled investment vehicles such as InvIT or REIT or AIFs.

The proposed amended provision of sub-section (8) of section 94, pertaining to the prevention of tax evasion through bonus stripping, so as to make the said provision applicable to securities as well.  

It is also proposed to amend the Explanation to the said section to modify the definition of unit, so as to include units of business trusts such as InvIT, REIT and AIF, within the definition of units.

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